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Under the Trump Administration in late 2020, the Department of Labor issued regulations regarding environmental, social or governance (ESG) investing. ESG investing considers the ethical implications of an investment by evaluating its environmental, social, or governance impact, in addition to the traditional financial performance of an investment. The rules clarified that ERISA requires administrators of pension and 401(k) plans to evaluate investments based on financial factors that have a material effect on the investment’s risk and return.
The Department of Labor under the Biden Administration, however, recently noted in an enforcement policy statement that it would not enforce these new rules. This position follows President Biden’s order instructing federal agencies to review Trump-era regulations to confirm they are not contradictory to or do not hinder the new administration’s goals.
Additional guidance is expected, as the interim head of EBSA indicated that the agency intends to promulgate new regulations or release further guidance instructing plan fiduciaries that they can consider ESG factors when evaluating investments. Until new rules are adopted, however, fiduciaries should remain cautious because a plan participant or beneficiary may still pursue private litigation for ERISA breach of fiduciary duty for failure to adhere to these rules.